Tweets and speeches don’t drive the stock markets – numbers do
It’s now clear that the investigations into President Trump are likely to continue through the 2020 elections. What’s still uncertain is the impact that these investigations will have on the stock market.
After rallying since Trump’s election victory in November 2016, the S&P 500 Index has done pretty well, but it has stumbled at times too:
• Ending 2016 up 9.54%;
• Zooming up 19.42% in 2017;
• Dropping 6.24% in 2018; and
• Up more than 18% so far year-to-date at the end of the third-quarter in 2019.
Although stocks have rewarded investors with healthy returns, investors seem more nervous that Trump will be impeached because not only will his pro-business agenda be stalled, but the chaos could send the markets into a tailspin. At least that’s the worry.
And although no one has a crystal ball to tell us how the Trump investigations will end, investors would be smart to tune them out. Here are a few reasons why.
Economics Matter More than Tweets
Economics and numbers matter way more than politics to the stock market. Trump’s tweets and speeches get all the media attention, and while the market might seem to react a little bit at times, the reality is that boring economic numbers drive the markets one way or the other. And consider these numbers:
• Unemployment is at 3.7%, one-tenth of a percent from the lowest level in over 50 years.
• We have seen 107 consecutive months of job growth, the longest streak ever.
• Wages have risen 3.2% this year, the strongest year in over a decade.
• Inflation has run below the Fed’s intended longer-term 2% target for most of this 10-year expansion and core inflation has averaged 2.1% so far this year.
• Consumer spending came in much higher than expected with a 4.7% annualized growth number, the highest gain in 4 years.
Impeachment is Unlikely Anyway
Investors should remember that impeachment is very unlikely as no U.S. president has ever been impeached and kicked out of office.
Andrew Johnson and Bill Clinton were both impeached, but they were acquitted in the Senate, where a two-thirds majority is required for conviction. Richard Nixon avoided impeachment and conviction only by resigning office.
Earnings Drive Stock Prices
What should investors worry about? Numbers. Specifically, corporate earnings.
It’s an investing adage that earnings are the lifeblood of the stock market. Stocks move in response to real or perceived earnings changes. If you are thinking of owning individual stocks, the trick is to find those whose earnings growth is strong, and should remain strong.
In aggregate, however, investors should worry about the upcoming earnings season as we head into the fourth quarter of 2019. Because according to research firm FactSet, as of September 27, 2019, 113 of the S&P 500 companies have issued EPS (earnings-per-share) guidance for the quarter.
And of these 113 companies, 82 have issued negative EPS guidance and 31 companies have issued positive EPS guidance. For perspective, the number of companies issuing negative EPS is above the 5-year average of 74.
Ignore Tweets and Speeches
Again, Trump’s tweets and speeches will continue to get all the media attention. But if you intend to own publicly-traded companies, make sure you read annual reports and earnings releases, not tweets.
PFG Private Wealth Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. This material and information are not intended to provide tax or legal advice. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.